How Did the Japanese Employment System Change Investigating the Heterogeneity of Downsizing Practices Across Firms

Abstract

Beyond the general issue of institutional change at the aggregate level, some studies have shown that the diversity of Japanese firms has increased since the late 1990s, both in terms of performance and organization. This paper contributes to this literature by investigating the evolving employment practices at the firm level. In mobilizing a database of listed manufacturing firms, we focus on the evolution of the speed of downsizing between the 1990s and the 2000s. A specificity of our paper is that we do not limit our analysis to the introduction of individual effects but we rather resort to a Bayesian estimation procedure, which yields to (firm-specific) individual forecasts of the parameters of the adjustment process modelled with random coefficients. The first major result we get is a decreasing average speed of downsizing, contrary to what is found in a simple estimation with individual effects. Second, we confirm the increasing heterogeneity of Japanese firms between the 1990s and the 2000s, through a rising dispersion of the speed of downsizing. Third, we are able, from a descriptive viewpoint to identify some characteristics of firms with different speed of downsizing.

Firm-level labor demand for and macroeconomic increases in non-regular workers in Japan

“…As for employment adjustment, Lechevalier et al (2014) find that firms with higher adjustment speeds have higher shares of foreign shareholders. This higher foreign ownership creates pressure to lower labor costs and increase flexibility, which can be achieved through the hiring of more non-regular workers.…”

“…Thus, bad financial conditions are found to lead to less stable employment relations. For example, Lechevalier et al (2014) argue that firms' high indebtedness might translate into pressure to downsize or hire more non-regular workers in the estimation of the labor adjustment speeds of Japanese firms. Caggese and Cu˜nat (2008) examine two opposite effects of financing frictions on the composition of permanent and fixed-term workers.…”

Impact of shareholder-value pursuit on labor policies at Japanese joint-stock companies: Case of Nikkei Index 400

“…In other words, managers whom creditors offer longer pay-back periods, enjoy more freedom of investing into long-term projects, including various forms of human resource development. Thus, R&D intensity is negatively correlated with employment downsizing (Lechevalier et al, 2014). The proxy for DOI is FSTS (Foreign Sales as a Percentage of Total Sales), which is the most common method used in previous studies (Sullivan, 1994).…”

“…The proxy for DOI is FSTS (Foreign Sales as a Percentage of Total Sales), which is the most common method used in previous studies (Sullivan, 1994). DOI is regarded in the literature as a stimulation for labor downsizing due to pressures related to international competition (Lechevalier et al, 2014). However, while more internationalized companies might resort to more frequent downsizing, it is not evident, whether they are likely to increasingly rely on nonregular workforce.…”

“…Most of the large Japanese companies, regardless of their ownership structure, have tended to cut their labor costs during the last three decades to improve their competitiveness. Hence, if a company chooses not to downsize its regular workforce, the only way for it to curb average labor costs is to freeze the hiring of new regulars and to intensify the hiring of nonregulars (Lechevalier et al, 2014). The data on degree of internationalization (DOI) and R&D intensity required to test the Hypothesis 3 is provided approximately by the half of the analyzed companies: 145 and 140 firms out of 245 disclosed the information regarding their R&D activity and exports respectively.…”